The following judicial decisions indicated the input services which are not eligible for availing CENVAT credit under CENVAT Credit Rules, 2004:
Services of Registered dealer
In ‘Gulf Oil Corporation V. Commissioner of Central Excise, Vapi’ – 2012 (8) TMI 45 - CESTAT, AHMEDABAD the Commissioner (Appeals) held that the input for manufacturing unit as well as for registered dealer for sale were brought in the same truck and the appellants paid the service tax on the
freight charge by reverse charge mechanism. They had already taken credit of the whole of the service tax even though a part of service tax is paid for transportation of input service used in their factory. The Commissioner (Appeals) found that they were not eligible for service tax paid on the portion of the freight which relates to transportation of the goods meant for trading purpose by registered dealer because the registered dealer is neither engaged in manufacture of dutiable goods nor is providing taxable services. The Tribunal agreed to with the findings of the Commissioner (Appeals).
GTA service
In ‘Assistant Commissioner of Central Excise & Service tax, Vishakapatnam V. Sree Siva Sankar Automobiles’ – 2012 (5) TMI 520 - CESTAT, BANGALORE the Tribunal held that the respondents are undisputedly having dual roles, one as dealer of the motor vehicle and the other as the authorized service station. The GTA services utilized for the purpose of transport or the vehicle to the dealer. This GTA services cannot be treated as input services in respect of activities undertaken by the respondent as authorized service station.
Overseas Agents services
In ‘Commissioner V. Dynamic Industries Limited’ – 2014 (8) TMI 713 - GUJARAT HIGH COURT it was held that Overseas agents services used for export of finished goods by manufacturer is not analogous to activities mentioned in inclusive part of the definition of ‘input service’ in Rule 2(l) of CENVAT Credit Rules, 2004. Hence credit of service tax paid thereon is not eligible.
Sales agents
In ‘Commissioner of Central Excise, Ahamedabad – II V. Cadila Health Care Limited’ – 2013 (1) TMI 304 - GUJARAT HIGH COURT the High Court held that the agents were directly concerned with sales rather than sales promotion. Services provided by them was neither business auxiliary services under Section 65(19) and 65 (105) (zzb) of the Finance Act, 1994 nor were they covered in main inclusive part of definition of ‘input service’ in Rule 2(l). It was not used directly or indirectly or in relation to manufacture of final products or clearance of final products from place of removal. It was not analogous to illustrative activities mentioned in the Rule 2(l) and therefore do not fall within the ambit of ‘activities relating to business’. In that view it was not eligible for CENVAT credit.
In ‘Ashik Dyeshiff Private Limited V. Commissioner of Central Excise & Customs’ – 2014 (1) TMI 776 - GUJARAT HIGH COURT it was held that the appellants are not entitled for CENVAT credit on sales commission services obtained by them.
Renting of immovable property
In ‘Venus Investments V. Commissioner of Central Excise, Vadodara’ – 2012 (11) TMI 574 - CESTAT, AHMEDABAD the assessee was engaged in providing ‘renting of immovable property’ services. The assessee wrongly utilized CENVAT credit under ‘Commercial or Industrial Construction’ services as input service for construction of immovable property. The Adjudicating Authority, relying on CBE&C circular No. 98/1/2008-ST, dated 04.01.2008 disallowed the credit. The Tribunal held that the Revenue’s contention that input services namely immovable property, neither subject to the Central Excise nor service tax, therefore credit not available is sustainable.
Trading of goods
In ‘Crossword Agro Industries V. Commissioner of Central Excise, Rajkot’ – 2013 (4) TMI 381 - CESTAT AHMEDABAD the Tribunal held that CENVAT credit is not admissible on the services used with respect to trading of goods when utilized only for export such traded items which were not used in the stream of manufacture.
In ‘Commissioner of Central Excise, Raipur V. G.K. Motors’ – 2014 (5) TMI 687 - CESTAT NEW DELHI the respondents are engaged in sales of motor vehicles of M/s FIAT India (P) Limited as their authorized dealer and are also authorized service station for serving the vehicle. They took and utilized service tax credit in respect of GTA services, advertisement services, insurance services, audit fee, valuation charges, repair and maintenance, A/C machine repairing, courier services etc., The Department was of the view that the respondents are not entitled for credit of such services. The Commissioner (A) allowed the appeal filed by the respondent. The Tribunal, on appeal by the Revenue, held that the alleged services cannot be said to be exclusively used in or in relation to providing output services, which have been received in connection with their trading activity.
Transportation activity
In ‘Commissioner of Central Excise, Jaipur – II V. Lipi Data Systems Limited’ – 2014 (10) TMI 308 - CESTAT NEW DELHI the Tribunal held that the Commissioner (Appeals) came to conclusion on evidence to demonstrate that facility of transport was provided to the workers to take them to the factory. When such a welfare measure is not provided to workers no CENVAT credit shall be admissible looking to the spirit of Rule 2(l) of the CENVAT Credit Rules, 2004 defining the input service. No relation to manufacture having been established from the transportation activity the Tribunal held that the order of Commissioner (Appeals) was erroneous and allowed the appeal filed by the Revenue.
Investing and dealing the shares
In ‘United Telecom Limited V. Commissioner of Central Excise, Bangalore-I’ – 2014 (5) TMI 218 - Karnataka High Court the High Court held that incidental object of investing and dealing the shares did not relate to and form part of main business of the company. The plea that it was not carried on regular business scale and did not partake in business activity of company is upheld by the High Court. It was not input service of which could have taken credit of service tax paid by it.
Erection, Commissioning, installation and manpower recruit and civil construction services
In ‘Shree Cement Limited V. Commissioner of Central Excise, Jaipur’ – 2013 (8) TMI 309 - CESTAT NEW DELHI the Tribunal found that dispute in the present case is regarding the eligibility of CENVAT credit in the erection, commissioning, installation and manpower recruitment and civil construction services. There is no dispute that these services were used in the residential colony of staff in the residence of Executive Director located outside the factory premises. The Tribunal referred the case in ‘Commissioner of Central Excise V. ITC Limited’ – 2011 (11) TMI 516 - ANDHRA PRADESH HIGH COURT in which the High Court examined the eligibility of CENVAT credit in respect of services used in the maintenance of staff colony. The High Court observed that services which are critical for maintaining staff colony such as lawn mowing, garbage cleaning, maintenance of swimming pool, collection of house hold garbage, harvest cutting, weeding etc., necessarily had to be considered as input service falling with in the ambit of Rule 2(l) of CENVAT Credit Rules, 2004.
The Tribunal found that the disputed services, in the present case are not mentioned in the services in the list of activities mentioned in the above said Andhra Pradesh High Court judgment. These services are not covered in any of the services mentioned after the word ‘as such’ in the definition of Rule 2(l). In such a situation the Tribunal held that the appellant will not be entitled to the benefit of CENVAT credit in respect of these services.
Loading and Unloading services
In ‘Hindustan National Glass & Indus Limited V. Commissioner of Central Excise’ – 2012 (11) TMI 1001 - CESTAT NEW DELHI the Tribunal found that there was no dispute about the fact that the ‘place of removal’ of the goods is the factory gate. The service of manpower supply for loading and unloading of finished goods at the transshipment point has been availed after removal of goods to the transshipment point. The Tribunal held that the service has no nexus with the manufacturing business of the appellant. The Tribunal justified the denial of credit on this service.
Insurance to family members of employees
In ‘Sundaram Brake Linings V. Commissioner of Central Excise, Chennai – II’ – 2014 (9) TMI 877 - CESTAT CHENNAI it was held that accident and medical insurance for family members of employees does not have direct nexus with manufacturing activity and does not quality as input services.
Canteen
In ‘ADC Industries Limited V. Commissioner of Central Excise, Bangalore’ – 2012 (12) TMI 388 - CESTAT, BANGALORE it was held that statutory liability under Section 46 of the Factories Act, 1948 does not exist in case where assessee does not having 250 or more employees during the material period for the purpose of establishing canteen and therefore the assessee is not entitled to credit of service tax.
Consultant service
In ‘Lyka Labs Limited V. Commissioner of Central Excise, Surat’ – 2013 (12) TMI 853 - CESTAT AHMEDABAD the appellant proposed to enter into manufacturing of herbal products for which they had engaged the services of consultant for ascertaining the market requirement. However the appellant abandoned the idea of venturing into the manufacturing of herbal products due to the business exigencies. Having abandoned the plan of diversification in the manufacturing of herbal products, the service rendered by consultant for these specific products, credit of said service tax would not be available to the appellant.
New definition of ‘input service’
The amended definition of ‘input service’ excluded the following services from the purview of ‘input service’ for availing CENVAT credit-
service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
thereof; or construction or execution of works contract of a building or a civil structure or a part thereof; or
laying of foundation or making of structures for support of capital goods except for the provision of one or more of the specified services; or
services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by –
a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or
an insurance company in respect of a motor vehicle insured or reinsured by such person; or
such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.
The circular No. 943/04/2011-CX, dated 29.4.2011 issued clarification amongst the one is-
Question – Is the credit of only specified goods and services listed in the definition of input service not allowed such as goods used in a club, outdoor catering etc., or is the list only illustrative?
Clarification – The list is only illustrative. The principle is that CENVAT credit is not allowed when any goods and services are used primarily for personal use or consumption of employees.
The new definition also will bring litigation on the interpretation of the word ‘such as’ in the definition in future.
Services of Registered dealer
In ‘Gulf Oil Corporation V. Commissioner of Central Excise, Vapi’ – 2012 (8) TMI 45 - CESTAT, AHMEDABAD the Commissioner (Appeals) held that the input for manufacturing unit as well as for registered dealer for sale were brought in the same truck and the appellants paid the service tax on the
freight charge by reverse charge mechanism. They had already taken credit of the whole of the service tax even though a part of service tax is paid for transportation of input service used in their factory. The Commissioner (Appeals) found that they were not eligible for service tax paid on the portion of the freight which relates to transportation of the goods meant for trading purpose by registered dealer because the registered dealer is neither engaged in manufacture of dutiable goods nor is providing taxable services. The Tribunal agreed to with the findings of the Commissioner (Appeals).
GTA service
In ‘Assistant Commissioner of Central Excise & Service tax, Vishakapatnam V. Sree Siva Sankar Automobiles’ – 2012 (5) TMI 520 - CESTAT, BANGALORE the Tribunal held that the respondents are undisputedly having dual roles, one as dealer of the motor vehicle and the other as the authorized service station. The GTA services utilized for the purpose of transport or the vehicle to the dealer. This GTA services cannot be treated as input services in respect of activities undertaken by the respondent as authorized service station.
Overseas Agents services
In ‘Commissioner V. Dynamic Industries Limited’ – 2014 (8) TMI 713 - GUJARAT HIGH COURT it was held that Overseas agents services used for export of finished goods by manufacturer is not analogous to activities mentioned in inclusive part of the definition of ‘input service’ in Rule 2(l) of CENVAT Credit Rules, 2004. Hence credit of service tax paid thereon is not eligible.
Sales agents
In ‘Commissioner of Central Excise, Ahamedabad – II V. Cadila Health Care Limited’ – 2013 (1) TMI 304 - GUJARAT HIGH COURT the High Court held that the agents were directly concerned with sales rather than sales promotion. Services provided by them was neither business auxiliary services under Section 65(19) and 65 (105) (zzb) of the Finance Act, 1994 nor were they covered in main inclusive part of definition of ‘input service’ in Rule 2(l). It was not used directly or indirectly or in relation to manufacture of final products or clearance of final products from place of removal. It was not analogous to illustrative activities mentioned in the Rule 2(l) and therefore do not fall within the ambit of ‘activities relating to business’. In that view it was not eligible for CENVAT credit.
In ‘Ashik Dyeshiff Private Limited V. Commissioner of Central Excise & Customs’ – 2014 (1) TMI 776 - GUJARAT HIGH COURT it was held that the appellants are not entitled for CENVAT credit on sales commission services obtained by them.
Renting of immovable property
In ‘Venus Investments V. Commissioner of Central Excise, Vadodara’ – 2012 (11) TMI 574 - CESTAT, AHMEDABAD the assessee was engaged in providing ‘renting of immovable property’ services. The assessee wrongly utilized CENVAT credit under ‘Commercial or Industrial Construction’ services as input service for construction of immovable property. The Adjudicating Authority, relying on CBE&C circular No. 98/1/2008-ST, dated 04.01.2008 disallowed the credit. The Tribunal held that the Revenue’s contention that input services namely immovable property, neither subject to the Central Excise nor service tax, therefore credit not available is sustainable.
Trading of goods
In ‘Crossword Agro Industries V. Commissioner of Central Excise, Rajkot’ – 2013 (4) TMI 381 - CESTAT AHMEDABAD the Tribunal held that CENVAT credit is not admissible on the services used with respect to trading of goods when utilized only for export such traded items which were not used in the stream of manufacture.
In ‘Commissioner of Central Excise, Raipur V. G.K. Motors’ – 2014 (5) TMI 687 - CESTAT NEW DELHI the respondents are engaged in sales of motor vehicles of M/s FIAT India (P) Limited as their authorized dealer and are also authorized service station for serving the vehicle. They took and utilized service tax credit in respect of GTA services, advertisement services, insurance services, audit fee, valuation charges, repair and maintenance, A/C machine repairing, courier services etc., The Department was of the view that the respondents are not entitled for credit of such services. The Commissioner (A) allowed the appeal filed by the respondent. The Tribunal, on appeal by the Revenue, held that the alleged services cannot be said to be exclusively used in or in relation to providing output services, which have been received in connection with their trading activity.
Transportation activity
In ‘Commissioner of Central Excise, Jaipur – II V. Lipi Data Systems Limited’ – 2014 (10) TMI 308 - CESTAT NEW DELHI the Tribunal held that the Commissioner (Appeals) came to conclusion on evidence to demonstrate that facility of transport was provided to the workers to take them to the factory. When such a welfare measure is not provided to workers no CENVAT credit shall be admissible looking to the spirit of Rule 2(l) of the CENVAT Credit Rules, 2004 defining the input service. No relation to manufacture having been established from the transportation activity the Tribunal held that the order of Commissioner (Appeals) was erroneous and allowed the appeal filed by the Revenue.
Investing and dealing the shares
In ‘United Telecom Limited V. Commissioner of Central Excise, Bangalore-I’ – 2014 (5) TMI 218 - Karnataka High Court the High Court held that incidental object of investing and dealing the shares did not relate to and form part of main business of the company. The plea that it was not carried on regular business scale and did not partake in business activity of company is upheld by the High Court. It was not input service of which could have taken credit of service tax paid by it.
Erection, Commissioning, installation and manpower recruit and civil construction services
In ‘Shree Cement Limited V. Commissioner of Central Excise, Jaipur’ – 2013 (8) TMI 309 - CESTAT NEW DELHI the Tribunal found that dispute in the present case is regarding the eligibility of CENVAT credit in the erection, commissioning, installation and manpower recruitment and civil construction services. There is no dispute that these services were used in the residential colony of staff in the residence of Executive Director located outside the factory premises. The Tribunal referred the case in ‘Commissioner of Central Excise V. ITC Limited’ – 2011 (11) TMI 516 - ANDHRA PRADESH HIGH COURT in which the High Court examined the eligibility of CENVAT credit in respect of services used in the maintenance of staff colony. The High Court observed that services which are critical for maintaining staff colony such as lawn mowing, garbage cleaning, maintenance of swimming pool, collection of house hold garbage, harvest cutting, weeding etc., necessarily had to be considered as input service falling with in the ambit of Rule 2(l) of CENVAT Credit Rules, 2004.
The Tribunal found that the disputed services, in the present case are not mentioned in the services in the list of activities mentioned in the above said Andhra Pradesh High Court judgment. These services are not covered in any of the services mentioned after the word ‘as such’ in the definition of Rule 2(l). In such a situation the Tribunal held that the appellant will not be entitled to the benefit of CENVAT credit in respect of these services.
Loading and Unloading services
In ‘Hindustan National Glass & Indus Limited V. Commissioner of Central Excise’ – 2012 (11) TMI 1001 - CESTAT NEW DELHI the Tribunal found that there was no dispute about the fact that the ‘place of removal’ of the goods is the factory gate. The service of manpower supply for loading and unloading of finished goods at the transshipment point has been availed after removal of goods to the transshipment point. The Tribunal held that the service has no nexus with the manufacturing business of the appellant. The Tribunal justified the denial of credit on this service.
Insurance to family members of employees
In ‘Sundaram Brake Linings V. Commissioner of Central Excise, Chennai – II’ – 2014 (9) TMI 877 - CESTAT CHENNAI it was held that accident and medical insurance for family members of employees does not have direct nexus with manufacturing activity and does not quality as input services.
Canteen
In ‘ADC Industries Limited V. Commissioner of Central Excise, Bangalore’ – 2012 (12) TMI 388 - CESTAT, BANGALORE it was held that statutory liability under Section 46 of the Factories Act, 1948 does not exist in case where assessee does not having 250 or more employees during the material period for the purpose of establishing canteen and therefore the assessee is not entitled to credit of service tax.
Consultant service
In ‘Lyka Labs Limited V. Commissioner of Central Excise, Surat’ – 2013 (12) TMI 853 - CESTAT AHMEDABAD the appellant proposed to enter into manufacturing of herbal products for which they had engaged the services of consultant for ascertaining the market requirement. However the appellant abandoned the idea of venturing into the manufacturing of herbal products due to the business exigencies. Having abandoned the plan of diversification in the manufacturing of herbal products, the service rendered by consultant for these specific products, credit of said service tax would not be available to the appellant.
New definition of ‘input service’
The amended definition of ‘input service’ excluded the following services from the purview of ‘input service’ for availing CENVAT credit-
service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –
thereof; or construction or execution of works contract of a building or a civil structure or a part thereof; or
laying of foundation or making of structures for support of capital goods except for the provision of one or more of the specified services; or
services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or
service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by –
a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or
an insurance company in respect of a motor vehicle insured or reinsured by such person; or
such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.
The circular No. 943/04/2011-CX, dated 29.4.2011 issued clarification amongst the one is-
Question – Is the credit of only specified goods and services listed in the definition of input service not allowed such as goods used in a club, outdoor catering etc., or is the list only illustrative?
Clarification – The list is only illustrative. The principle is that CENVAT credit is not allowed when any goods and services are used primarily for personal use or consumption of employees.
The new definition also will bring litigation on the interpretation of the word ‘such as’ in the definition in future.
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